A resource page containing information about Uber, with a focus on the issues around its expansion into Canada. A PDF version is here.
|Disability links added to the original post|
2 Uber and out
In September, Uber introduced its UberX service in Toronto as part of a broad expansion across Canada (among other countries), and the City of Toronto is now seeking a court injunction to stop the company. Back in December 2012 the company was chased out of the city, but now some journalists, business professors, and even the mayor (not that one) think it’s time to disrupt the taxi industry, ignore the city licensing and standards process and let Uber run its taxi alternatives.
You’d think, reading these articles, that customer service is the only issue at stake here. But there’s more to it than that: the decision about Uber is also a decision about the kind of jobs we want to have, about accessibility, and about the kind of city in which we want to live. It’s about us as consumers, but also us as citizens, us as Canadians, and us as employees.
3 Uber is not “the future”, it’s “a future”
Contrary to the way some articles are written, we do have a choice here. A lot of the links above talk as if Uber were some kind of inevitable future (“The Ubers are destined to win the taxi wars”); here is an example from Todd Hirsch:
It’s an economic tale told time and again. Camera film makers. Video stores. The music recording industry. Perhaps most famously, the Luddites – those textile labourers in 19th century England who protested against the introduction of mechanized looms by smashing them. Many of them failed to adapt to new, disruptive technologies and went extinct.
Next on the list may be the taxi industry…
Conflating Uber with the broad advance of technology is just wrong, and it’s also exactly what Uber wants us to do. After all, if you’re the future, who can argue against that? But thousands of new technology businesses start every year, and many of them fail. Groupon turned out not to be the future of shopping. Mayor John Tory wants to “sit down with the Ubers and the Hailos and others of the world”, but Hailo has already folded its North American operations. Paris has turned down UberPop, but it has Autolib’, which may be the world’s most successful electric-car sharing program. There are many roads to the future—many innovative roads to the future—and the best of them don’t involve Uber.
The Uber controversy is not just—or even mainly—a technology story, it’s fundamentally a deregulation story; the story of a uniquely American fundamentalist free-market worldview being sold to us in the name of “car-sharing” and innovation.
4 Two cheers for regulation
Uber CEO Travis Kalanick’s says that his company is engaged in something like an election race in which
Uber is the candidate and [its opponent] is an asshole called Taxi. I’m not totally comfortable with it but we have to bring out the truth of how evil Taxi is.
Kalanick also referred to “Our opponent – the Big Taxi cartel” when he hired former Obama strategist David Plouffe to run its political lobbying efforts.
It’s worth reflecting for a moment on the fact that cities all around the world, with many different political and economic traditions, have decided independently that taxis need some regulation; and there is no “Big Taxi cartel” coordinating these decisions. Taxi firms are generally city-wide, at least until Uber itself came along.
Cities have had their own reasons for regulating taxis. As McGill University Law Professor Paul Stephen Dempsey wrote in a 1996 paper, regulations typically include:
(1) limited entry (restricting the number of firms, and/or the ratio of taxis to population), usually under a standard of “public convenience and necessity,” [PC&N] (2) just, reasonable, and non-discriminatory fares, (3) service standards (e.g., vehicular and driver safety standards, as well as a common carrier obligation of non-discriminatory service, 24-hour radio dispatch capability, and a minimum level of response time), and (4) financial responsibility standards (e.g., insurance).
It is not a coincidence that, all around the world, taxi regulation happens at the city level rather than at a national or provincial level. Different cities have different needs. The one-size-fits-all model that Uber wants to roll out treats Tokyo the same as London the same as Windsor, but as Dempsey (see link above) writes:
In the final analysis, the suitability of taxicab service and pricing is a peculiarly local issue, best tailored by local governments based on their unique populations, spatial densities, road congestion, air pollution, and airport and hotel traffic.
Meanwhile, for all its attempts to conjure up an underdog image, Uber has funding from (among others) Google, Jeff Bezos of Amazon, and Goldman Sachs.
It’s also worth remembering that taxi deregulation has been tried and failed in many places. For example, Seattle deregulated in 1979 but found that “service quality declined and rates were often higher”; and a 2004 US report noted that
…several studies, including a 1993 Price Waterhouse study, found that overall, in many cities that deregulated, the supply of taxicabs increased, fares increased, service quality declined and there were more trip refusals, lower vehicle quality, and aggressive solicitation of customers resulting from a higher supply of taxicabs.
So taxi regulation is imperfect, but the solution to that imperfection is not to walk away from it. Taxis are part of city infrastructure, like buildings, buses, and subways, and serve a valuable public service. Taxi regulation provides a way for the public and for our elected representatives to have a say in how the taxi industry works, so that (for example) Toronto can demand that the entire taxi fleet must be wheelchair accessible, rolling in over the next decade, or London can introduce a zero-emission Metrocab to address environmental concerns. The taxi industry may be a flawed part of our democratic institutions, but the solution to flawed democratic institutions is more and better democracy, not the American rejection of government and of democracy’s role in the economy.
Despite claims of technological inevitability, saying No to Uber is perfectly compatible with innovation and forward thinking. If Canadian cities such as Toronto do say No to Uber, they would be joining cities around the world such as Berlin, Seoul, Madrid, and Paris in refusing to roll over and hand the responsibility for their taxi service to Silicon Valley.
One of the reasons for regulation in many cities is to ensure universal access to a city’s transport.
Uber’s record on disability access is troubling:
- blind riders are suing Uber,
- disability activists are filing lawsuits,
- Next City has a good article on the concerns (June 30, 2014).
- In Seattle, Uber charges a $0.20 fee that it passes to the city to pay for wheelchair-accessible transit vans. Uber drivers see none of this (it basically reduces the proportion of the fare that they receive) and there seems to be no intent on Uber’s part to actually provide a reasonable number of wheelchair-accessible vehicles.
- Some Uber cities advertise UberAccess and UberAssist: programs to call an accessible vehicle. They are listed here.
Uber is lobbying to change proposed legislation designed to increase the paltry number of wheelchair-accessible taxicabs in Washington, because the bill could “place excessive regulatory burdens on private vehicle-for-hire companies,” a spokesman for the tech company said. – American University Radio.
Issues of technology and race are complex: some people of colour report a dramatically better experience than with taxis but others are concerned about customer profiling, and potential for discrimination.
5 Uber corporate culture
Digital platforms are governed by network effects, which is why Uber’s massive funding rounds (having raised $1.5 Billion, they are now looking to raise another $1 Billion) and rapid global expansion are so important to the company’s future. They and their investors know it’s a winner-take-all game; that’s why Uber CEO Travis Kalanick admitted this month that he undermined the fund-raising efforts of his main competitor, Lyft. The decision facing Canadian cities is not about permitting a smartphone app, it’s about handing a large part of Toronto’s taxi service over to Uber.
So what kind of company is Uber, that people want to put aside taxi regulation and hand control over to them?
It’s a company in the middle of controversy, as executive Emil Michael muses about digging up dirt on (female) journalists who criticize the company. It’s a company that spies on its customers using what it calls its “God View” of company data for party tricks or for blog posts. It’s a company whose top New York exec is being investigated internally for tracking a female journalist without her consent. It’s a company whose employees have warned another female journalist that “company higher-ups might access my rider logs”.
I emphasize “female journalist” here because the culture of the company is a big part of the problem. Do we want to hand over Toronto streets to a company whose CEO wisecracks about women on demand (“Yeah, we call that Boob-er“)? Which “can and does track one-night stands” and posts a blog entry about the data called “Rides of Glory” (now removed)? Which, more damagingly, ran a campaign in France (now also removed) called “Avions de Chasse” to pair Uber riders with “hot chick” drivers? As the company posted on the English version of its website:
“Avions de chasse” is the French term for “fighter jets”, but also the colloquial term to designate an incredibly hot chick. Lucky you! the world’s most beautiful “Avions” are waiting for you on this app. Seat back, relax and let them take you on cloud 9!
This is a company that responded to a complaint by a female customer that she was driven 20 miles out of her way to an abandoned lot by saying it was an inefficient route.
It’s also a company that coaches Miami drivers how to circumvent laws. It’s a company that ordered and cancelled over 5,000 rides with its main competitor to interfere with their service. It’s a company that sets out to dupe newspapers with fake PR, and which now talks of “weaponizing facts” in its PR campaigns (this company really likes its military analogies). In short, it’s a company that reflects the worst of the macho culture of some parts of the technology industry.
6 Drive income: the Uber unicorn
What really appeals to people who have used Uber (and I am not one of them) is the smooth efficiency of the service, an efficiency that relies on drivers to be in place, ready to take you where you want to go.
According to Uber, efficiency and affordable pricing is combined with fantastic pay for drivers. In May 2014 the company posted a claim on its website that the median uberX annual income is $90,766 in New York City and $74,191 in San Francisco. The claim was hailed (hah!) by Matt McFarland of the Washington Post with the headline Uber’s remarkable growth could end the era of poorly paid cab drivers. Noting that “estimates of the typical cab driver’s salary hover around $30,000”, McFarland acknowledged that “Uber’s numbers don’t account for the costs a driver incurs to own and operate a vehicle. Still, the gap in compensation for providing similar services is astounding”.
The claim is indeed astounding. How could Uber pay its drivers three times the pay of a taxi driver, charge riders less, and still be profitable? The initial explanation was that taxi medallion owners in many cities suck all the money out of the taxi system (see financial journalist Felix Salmon here and here for example).
I took a look at the claim when it was made and compared Uber’s estimates to taxi reports from three different cities. It was clear that Uber was taking out about the same percentage of each dollar of fare from the system as do medallion owners (20% of the fare at the time, plus a $1 “safety fee” per ride), so there was no magic there after all. The company admitted that it was looking only at drivers who logged over 40 hours a week which, given that most drivers are working longer than they are actually “on the app” means that the average is highly selective of the top end of drivers. Finally, Uber massively underestimated the costs of gas, maintenance, insurance, and other expenses (such as tolls) that drivers incur (uberX drivers must drive their own cars).
Since then, the claim has become less and less plausible. Felix Salmon toned down his praise here. Seattle Uber drivers protests in April and August, San Francisco drivers protested low income in May, Los Angeles drivers protested in September, New York drivers protested in September (Uber backtracked over new rules it had introduced) and again in October along with San Francisco and London. Low income has been a consistent complaint, including on the active Uber driver forum UberPeople and at Reddit. Reports from individual Uber drivers failed to come near to the income figures that Uber claimed (for example this report from Fort Worth (strong language!) or this report or this report from Boston).
Meanwhile, Uber has been taking a bigger and bigger slice of the consumer dollar. The $1 per trip “safety fee” was a start, then they started charging drivers $10 per week for use of a smartphone, and more recently they increased their commission for new drivers in San Francisco to 25% of the fare.
Finally, multiple rounds of fare cuts have put pressure on driver income. Uber insists that a greater number of rides per driver makes up for the price cuts, but drivers themselves dispute this claim and there are few numbers from Uber to back it up.
The $90,000 claims have been re-investigated in recent weeks by two of the most consistently informative journalists covering Uber. Johana Bhuiyan of Buzzfeed looked at eleven Uber drivers’s pay slips here; and Slate’s Alison Griswold called the $90,000 driver Uber’s Unicorn, saying “In several months of reporting on Uber, I have yet to come across a single driver earning the equivalent of $90,766 a year.” She asked Uber’s Lane Kasselman to introduce her to one and concludes: “Last I heard, they’re still looking.” Meanwhile, the New York Post concludes that “their take-home pay is closer to the average that yellow cabbies make.”
7 Rating systems and vulnerable drivers
Money is, of course, one of the main points of contention for many jobs, but Uber is not just another employer. In fact, it’s not an employer at all: Uber drivers are “partners”, self-employed entrepreneurs who choose to work on the platform. The model of “micro-entrepreneurs” who can choose when to work independently is what makes Uber part of the booming “sharing economy” along with others such as Airbnb. What seems at first like a light-weight and flexible model of work turns out, in Uber’s hands, to be another way for the company to have its cake and eat it too.
Uber claims its drivers are not employees, but has been exerting more and more control over their behaviour.
Uber makes it easy for new drivers to join up: it publicizes what many drivers describe as unrealistic earnings to attract interest (see above) and encourages drivers to take out what amount to subprime loans in order to buy a car. Then, of course, the driver has to put in long hours to pay off the purchase, and being kicked off the platform becomes even more of a threat.
Uber has taken advantage of the vulnerability of its drivers by imposing more and more strenuous rules. Driver acceptance rates (when the app assigns them to a customer) have to be up around 90% or you get a notification to “Please improve your acceptance rate if you want to continue to use the Uber platform”. Drivers claim to have been deactivated for being critical of the company on Twitter. Drivers on the premium Uber Black service (I have mainly ignored the complexity of the different Uber services here) were suddenly forced to take requests for the lower pay uberX service. The company tracks driver locations and complains if they are not to the company liking.
But at the heart of the control is the rating system that permits riders to rate drivers. Most riders give their drivers five stars out of five as a courtesy, but if a driver’s rating slips even slightly – below 4.7 in many cities – they can be “deactivated” or kicked off the platform. The system makes drivers vulnerable to the most demanding of riders, as a small number of complaints can lead to the driver losing their way of making a living. And of course there is no appeal, as the driver isn’t an employee and the contract is not a work contract. The reports of happy and friendly Uber drivers (see the Globe and Mail articles at the beginning of this post) take on a different meaning once you know the precariousness of Uber drivers’ situation. As Forbes’ Jeff Bercovici reported, “Uber likes this system because it enjoys being able to say all of its drivers have near-perfect ratings. But it’s a harsh one for drivers, and also for customers, who find themselves repeatedly forced to choose between guilt, spite and ignorance.”
While Uber gets to dictate the behaviour of its drivers in more and more specific ways, it still takes none of the responsibility when things go wrong. Section 230 of the “Communications Decency Act” may seem like an odd law to protect the company, but here’s how it works. The law was initially introduced to say that blog sites and other user-content sites such as YouTube were not responsible for content posted by its users. Fair enough. But now Uber says it’s not a taxi company, it just runs a web site and an app, and puts drivers in touch with riders. Anything that goes wrong is not Uber’s responsibility, it’s the driver’s. The law is an American one, but challenging Uber is going to be expensive and maybe prohibitively so for Canadians too, especially given the company’s formidable bank account.
Uber’s rules seem to step over the line regarding whether a driver is, or is not, an employee according to Canada Revenue Agency rules. Sharing economy workers are facing this issue with other companies too, such as cleaning/odd-job service Handy. It’s an issue that other industries face, such as construction, and the root cause is always the same: classification as an independent contractor relieves the hiring company (Uber in this case) from having to pay EI premiums, and from having to abide by employment standards. The risk is pushed entirely onto the subcontractor. When Toronto mayor John Tory says that Uber should be allowed to operate, he’s implicitly approving of these arrangements, and allowing bad labour practices to intrude further and further into Canada’s workplaces. It’s bad for the drivers, and it’s bad for our society.
8 Summing up
This post is already too long. I could have written about the occasional horror stories of accidents and abusive behaviour from drivers, but they happen with taxis too. And I’ve not covered the dubious screening process that Uber uses, or the lack of proper mechanical inspection of the cars, or the difficulties with insurance: these have all been covered elsewhere.
The list of problems with Uber is long. The existing taxi industry is not perfect, especially in big cities, but it is a part of the democratic fabric of the country, and we need to address its problems by better democracy, not by throwing democratic accountability aside for the promise of self-regulation by an unaccountable company with an arrogant, sexist corporate culture, which treats its drivers badly, which walks away from its responsibility when things go wrong, and which is importing an American anti-democratic attitude into this country.
Thanks for a very useful article. I have also been struggling with how to define “The Uber Problem” to people who haven’t yet developed firm opinions, how to explain how problematic the company’s business model and growth plan is, and how to break through the clutter created by Uber’s massive PR expenditures. Nothing here is meant to imply disagreement with anything you’ve written, but are just intended as suggestions as how to approach the communication problem. The view here (explained a bit later) that the “Uber Problem” is somewhat bigger than your post implies, thus the need to think about how to respond a bit more carefully. To be clear upfront I have no connection with any Urban Car Service company, investor or regulator.
1. How to sell “Uber is not the future”—part 1–Economics. The heart of Uber’s PR propaganda is that it has harnessed powerful economic advantages that will inevitably drive Ebay/Amazon/Facebook caliber marketplace upheavals. In David Plouffe’s words “change in inevitable” meaning of course “resistance is futile”—mere mortal cannot possibly halt economic progress and (as you note) anyone who raises objections must be a Luddite. I don’t think this can be countered in public discussion with a “golly gee, that’s only one possible future, Uber’s prediction might be right, but maybe things will work out differently” I think this central PR message needs to be attacked directly on its own (economic/business) grounds, where I think it is weakest, and once you’ve undermined this central claim, it becomes easier to address the rest of their PR campaign. Uber is not trying to become a niche competitor carving out a modest market share in a handful of big cities; in its view Future Big Uber (A) wipes out most existing taxi/limo/livery companies and dominate the Car Service Industry worldwide. Uber’s view of the Future could not possibly be a good thing unless major provides major service improvements at significantly lower costs than the existing taxi/limo/livery companies.(B) But there is absolutely no evidence that Uber can produce Urban Car Service more efficiently, and substantial evidence that Uber will actually be less efficient. The current industry (C) clearly has lower costs of vehicle ownership, maintenance, insurance and financing. Uber will have higher labor cost for at least the medium-term since it cannot grow unless drivers are convinced they will make significantly more with Uber, after accounting for all their capital costs/risks and direct operating costs(D) Existing companies would seem to have a strong advantage tailoring capacity to local market demand, which is critical in any transport industry to controlling costs and ensuring very high service reliability. Nothing in the Uber business model (i.e. smartphone apps, which can easily be matched—see item 2 below) could possibly overcome these cost/service issues and create major, sustainable economic advantage. If there isn’t a clearcut explanation of how Future Big Uber can achieve much lower total operating costs, and use those much lower costs to provide much more/much better service, there’s absolutely no reason to think society would be better off if Future Big Uber wiped out most of today’s existing companies and became the dominant supplier of Urban Car Services. This is the short version of a “No Uber can’t be the future because its economics fundamentally don’t work” For a longer version see http://talkingpointsmemo.com/edblog/understanding-the-economics-of-uber But I think something like this is where you need to start, and I think it is a much better starting point than anything that concedes that Uber’s (PR) view of the Future has any plausible justification.
2. How to sell “Uber is not the future”—part 2—Technology A critical related piece of Uber’s PR message is that one of the reasons it expects to destroy all current and potential future competitors is its huge technology advantage that will allow it to disrupt and dominate the industry just like Facebook and Amazon and others, . Someone who had rationally worked through the bottom line competitive economics in part 1 wouldn’t bother with part 2—in order for Uber to overcome its operating cost disadvantages, it would need offsetting technology advantages on the order of having invented the internet. But as you surely know, technology arguments are not always rational or grounded in business economics, and I think you need a clear, blunt argument that no, Uber is not introducing any technological breakthroughs that have any possibility of transforming industry competition. First it needs to be emphasized that Uber is not a technology company whose success will be based on continually creating new, high-value software. It (along with its “independent contractor” drivers) is in the transportation business—success strictly depends on the ability to provide lower cost/higher quality Urban Car Service than its competitors (E). Uber is not using technology to create a new product or a new industry. Book-in-advance (“black car”) services have existed for decades, and the demand for Urban Car Service will not increase unless Future Big Uber demonstrates efficiencies that can be translated into much lower prices. The only innovation Uber introduced is that instead of booking cars by making phone calls to a dispatching office that allows drivers to bid on trips, you use a cell phone app that allows drivers to bid on trips. The efficiency advantages of “customers book by smartphone app” versus “customers book by telephone” are not only trivial in the context of overall Urban Car Service competitive economics, but they can be easily matched. (F) Consumer ordering apps have been introduced in hundreds of other businesses; none had any significant impact on competition, and there is no basis for expecting Uber to transform and eventually dominate the Urban Car Service industry because of its app.
3. How to sell “Two cheers for Regulation”. This is a great illustration of the communication problem. Some people anything that weakens anything that can be called “government regulation’ must automatically produce massive efficiency gains, a smaller group would never doubt the need for rules and oversight, but the eyes of the much larger group in-between will instantly glaze over when you try to break down the different categories of Urban Car Service regulation, how they apply differently to different categories of operators (meter taxis, limos, van services) and how there are huge variations in regulations across the hundreds of cities Uber plans to serve. I would suggest focusing a very basic set of questions: would you (as a consumer) think you were better off if—when you walk out of an airport and see a queue of taxis—you would have no assurance that any of the drivers carried enough insurance to cover the cost of an accident, you would have no assurance whether any of the taxis had been met any minimum maintenance standards, you would have to interview and negotiate with all the drivers in order to find the lowest price, and if you got seriously ripped-off or injured in an accident, you would have to figure out how to file a personal lawsuit against the driver? When Uber says it is trying to disrupt the corrupt regulators that protect the evil “taxi cartel” what it really means is that it doesn’t want to obey longstanding insurance, maintenance, and consumer protection rules, so it can save money by buying less insurance, doing less maintenance, and leaving you paying the bills if there’s an accident. The only way to undermine Uber’s attempt to frame discussion around the vague concept of “eliminate wasteful regulations” you need to start by reframing around “Uber wants to disobey the insurance requirements other cab companies have always met”. If you can communicate that point, then you can go on to “their goal isn’t regulatory reform, its regulatory arbitrage, because they still want their competitors to have to obey those rules” and other points.
4. How to sell the Culture/Sabotage/Harassment Argument. Again, there’s a group that immediately takes offense when a company raises its middle finger to the rest of society, a group that would ignore any problems if the financial returns were high enough, and a larger group that doesn’t want to be bothered with trying to figure out whether the misbehavior stories were really just planted by equally evil competitors, and figures that there must be rogue behavior in every big company, and gee isn’t everyone in the tech industry poorly socialized. I would suggest that focusing on the basic competitive economics is the simple way to help outsiders to distinguish unrepresentative, rogue behavior from systemic problems. If Uber had powerful cost advantages that would allow it to profitably offer better service at lower cost, most of the observed frat-boy arrogance/deliberate sabotage would be counter-productive. They might want to send a signal to their investors about their passionate dedication, but pissing off regulators, the media and key customers, and provoking lawsuits is stupid if you can succeed without doing that stuff. Amazon didn’t spend time demonizing the old-line bookstores they were competing with, or harassing journalists who didn’t think they could ever make money—instead they kept pointing to the efficiency/service advantages they were trying to establish.. In fact no high-growth startup that eventually established a strong efficiency/product quality track record ever exhibited the scope of misbehavior seen with Uber. But if Uber doesn’t have strong, sustainable economic advantages over the existing industry, then the only way it can achieve market dominance is through the sheer brute force of its financing and its huge PR effort to create the impression of unstoppable, inevitable victory. If Uber doesn’t have clear competitive advantage, but still has to kill off every major competitive and legal obstacles to future dominance, then the intimidation of regulators and journalists and competitor sabotage are critical parts of their strategy, and can’t possibly be excused as the unnecessary, unsanctioned actions of rogue actors. Every high growth startup has a hype machine which works until it stops working; (G) either financial analysts and journalist finally figure out the problematic economics that the hype was trying to conceal, or excessive cash burn causes investors to bail. But if you have enough money to fund the PR machine and unprofitable startup pricing, and you can intimidate anyone who might expose your weaknesses, then Uber’s “change is inevitable” could become self-fulfilling.
5. Recognizing the brilliance of Uber’s PR strategy. My biggest shock when I began following Uber, was my complete inability to find straightforward arguments about basic competitive issues, or to get Uber supporters to provide any reasoned, factual responses to simple questions about Uber economics. My background is transport (mostly aviation) strategic planning, and didn’t think my questions were the least bit different from ones any MBA or financial analyst would ask about a startup transport business. What I’ve come to realize is that efforts to engage Uber supporters on any logical/empirical grounds are hopeless, and Uber’s biggest PR objective is to block any public debate framed around traditional business/finance/marketplace questions (as Uber would eventually lose). Uber had succeeded in forcing all public discussion into a framework that closely parallels most partisan political “debates”, with heavy emphasis on symbolic/emotive tribal markers in order to enlist allies and focus their attention on evil enemies. Thus oft repeated claims that Uber is a heroic innovator using cutting edge technology to disrupt a backwards industry and the corrupt regulators protecting them—but no actual evidence of major technological innovations, no actual evidence of greater economic efficiency than the current “backwards” suppliers, and no actual evidence of massive consumer welfare losses from corrupt regulations. But Uber has now enlisted the loyalty of various ideological/socioeconomic groups who naturally frame things in “entrepreneurs-good; anything government related—evil” terms. One of David Plouffe’s first actions was to try to extend this tribal loyalty appeal to new groups (Uber supports Obamacare!). Again, Uber’s frat-boy attitudes and “take-no-prisoners” arrogance is a key part of this tribal/emotive signaling. It strengthens affinity throughout the tech and venture capital fields—hey, sounds like the kind of people we like to invest with. It also baits potential opponents into behavior that directly helps Uber. They focus on complex abstractions (privacy, journalistic independence, data security, handicapped rights, tech industry misogyny) while ignoring the question of whether Uber ‘s business plan is based on any legitimate competitive advantages. Which feeds Uber’s emotive tribal warfare framework—heroic innovators versus namby-pamby types who constantly demand government protections. Which gets lazy media types to reinforce Uber’s partisan/tribal framing—the simple Uber vs Chicago medallion holder storyline is simple to write, and automatically makes Uber the good guy (F); the Sara Lacey versus Emil Michael story also writes itself, and serves as a complete distraction from all of Uber’s economic issues. Once the public “discussion” is totally framed along emotive/tribal lines, it becomes absolutely impossible to raise factual business issues (what are the boundaries between Uber and UberX? How much liability insurance protection do passengers actually have? How much of Uber’s revenue growth depends on surge pricing?) as every response will be some version of either you welcome innovation or you are an enemy of innovation.
6. Why is Uber an Important political issue? Why do powerful interests spend humongous amounts on PR efforts to reframe major political issues (health care, foreign policy, income equality, etc.) in emotive/tribal terms? Because it ensures a hardcore base of supporters anxious to attack evil enemies, because the PR creates an “alternate reality field” impervious to outside attack on logical/empirical grounds, and because tribal battles over alternate definitions of reality completely neutralizes the media and anyone else purporting to be a neutral arbiter of society’s interests. The creation of “alternate reality fields” is an expensive, challenging process but it is vastly simpler than developing workable policy solutions to complex problems, and demonstrating that their implementation benefitted broad ranges of voters. Why do major oligopoly industries (finance, energy, telcom, defense) spend fortunes on PR efforts structured around this same political tribalization? Because it protects those powerful interests from scrutiny and political challengers. Uber’s innovation is not the introduction of smartphone apps to the taxi industry, but the introduction of a tribalization/PR driven “alternate reality field” to venture capital, designed to protect its powerful investors from scrutiny and challenges. Uber’s $30 billion valuation is entirely based on an “alternate reality field” featuring a smartphone app that will completely wipe out existing Urban Car Service operators in hundreds of cities worldwide, eliminate the need to obey any laws and regulations applicable to existing operators, and (once dominant) allow the company to exploit significant market power over drivers and consumers . This is also an expensive and challenging process, and may not succeed in the end, but it is vastly simpler than developing a business plan that can actually produce enough superior efficiency and service to provide lower fares and improved service to consumers, better wages for drivers, and satisfactory returns to investors. The Uber business plan is designed to reduce economic and consumer welfare and make society worse off. It is designed to reallocate capital to less productive uses. It is designed to allow a handful of investors to transfer several billion dollars on industry value into their personal bank accounts even though they added no net value to the industry. Uber’s PR efforts are designed to allow its venture capital and Silicon Valley supports to maintain the fiction that they are a major source of the innovation needed to fuel growth and that they strictly follow objective criteria as to how capital should be allocated, while they proceed to wreak massive economic destruction in pursuit of massive personal wealth. I think Uber is an important political question because stopping this destruction would benefit society as a whole. Thus I think it is worthwhile for people concerned about Uber to discuss how opposition might best be expressed and communicate, and I hope you accept these comments and suggestions in that spirit. I look forward to any questions and comments you might have.
(A) Uber PR highlights happy customers who can immediately summon clean town cars at amazingly low fares on rainy Saturday nights when taxis are nowhere in sight, ignoring the massive subsidy these drivers and passengers are getting as Uber is trying to establish itself, and ignoring the fact that every high-growth well-funded startup uses similarly unprofitable subsidies while it tried to grow and kill off existing competitors. Thus I’ve found it useful to highlight Future Big Uber—the company that Uber hopes will exist 5-10 years from now—which will not be subsidizing low fares and peak capacity.
(B) yes, other requirements would need to be met for Uber’s future to be a good thing, (i.e. the major efficiency gains were shared somewhat with consumers/labor, no creation of artificial market power) but since it fails the first, most obvious test, it makes the argument a little easier
(C) meaning current operators of a minimum size, with half-way competent owners and managers, with some reasonable track record of service.
(D) the best refutation of the “uber drivers make 90 grand” I’ve seen is http://justin-singer.org/blog/2014/06/beautiful-illusions/ However the driver earnings debate is a distraction from the core economic questions. Uber would rationally pay drivers more (increasing short-term losses) as they tried to build market share; there is absolutely no reason to think driver earnings would be higher with Future Big Uber than they are today, and many reasons to believe they would be lower.
(E) the counter-argument when Uber supporters say “oh no, we are not in the transportation business, we just a middleman providing the software that links transportation providers to its customers” is to ask why Uber’s investors think that middleman can extract tens of billions of economic value out of the rest of the Urban Car Service production chain, and to provide another example of a customer-to-producer software program that is valued at more than the entire industry had ever been valued at.
(F) My local cab company here in Phoenix actually purchased a small software company so that its smartphone app and scheduling software could be produced in house. Nobody thinks this software capability means the company should now be valued at $30 billion. The longer version of the technology argument would also note the limited competitive importance of Uber’s scheduling software (a properly run Yellow cab company already has better software that better reflects unique local demand conditions that Uber’s “one-software-fits-all-markets” would not) Uber’s data collection capability (Yellow Cab’s software is already using its booking data to plan vehicle and driver schedules) and variable pricing (a more complicated question, technically illegal in meter taxi markets, but something that will face strong consumer resistance and certainly won’t be the factor that drives competitors out of business).
(G) paraphrasing Bobbie Johnson’s comment that startups “never work…until they work” https://medium.com/matter/how-to-get-away-with-uber-75b406043733
(H) for a perfect example of a mainstream media article that purports to be journalism but is totally devoid of any reporting about Uber economics, while fully supporting Uber’s PR objectives see: http://www.washingtonpost.com/blogs/wonkblog/wp/2014/11/27/as-uber-fights-new-battles-over-privacy-an-older-war-simmers-with-the-cab-industry/
Thanks for this very thoughtful response. It’s a complex problem, how best to pursue the debate around Uber when there are so many facets to it. I think I see the basic thrust of your argument, though I would dispute some parts of it.
Towards the end you highlight the possibility of Uber’s “change is inevitable” becoming self-fulfilling. But I wonder if you get split between the normative and the positive? The “economics shows that Uber is not the future” argument in particular seems couched as a positive statement about how things are, but in that case why spend energy arguing about it? the future will take care of itself.
I found the point about Uber’s PR strategy is a strong one. If there’s a lesson from Airbnb’s similar success, it’s that a good story beats a mountain of facts, and I’m sure Uber knows this too. Uber is coming to where I live and there is a debate in the letters page of the local paper, and to be honest my own contribution is all about how bad the company is and its scandals, even though I don’t think that’s the strongest, because in 200 words you can’t (well, I can’t) make an economic or other case.
In the end, I think the problem of how to sell an argument is best solved by experimentation and the grounds will surely shift as new developments happen (the Justin Singer article on driver pay was great, by the way). But it’s definitely worth reflecting on the way the debate is framed and on how we frame our own interjections.
No, I don’t think there’s any reason to think Uber’s bad economics will take care of themselves.
Shadow banking and TBTF banks create massive systemic risks that have been shown to devastate the world economy. This has been documented in painful detail; the economics have not taken care of themselves. Austerity policies have been shown to have been hugely destructive of European economies. The bad economics have not taken care of themselves. The consolidation of major industries such as telecoms, health care, military contracting, airlines and many others have been shown to be nothing but a major wealth transfer from consumers and workers to narrow groups of capitalists. The costs of the rent-seeking activities these oligopolies pursue, and the risks to future innovation and growth have been long documented but the bad economics have not taken care of themselves. The information about the bad economic results is widely available, but the markets ignore it, and the bad policies do not change.
How do you short circuit the information flow that markets are supposed to use to take care of bad economic actions? By shifting all economic actions to a purely political sphere. Criteria for evaluating market/economic issues (efficiency, growth, competitiveness, productivity, innovation, etc) are messy and complicated and require lots of empirical data and lots of dispassionate analysis. Political power calculations are intuitive and emotional. Once the “public debate” is restructured around partisan/tribal/ideological signals, any objections based on financial/efficiency/innovation grounds will simply be ignored—both by tribal loyalists who will tune out inconvenient facts and attack anything their tribal enemies say, and by the mainstream media that will never try to sort through complicated economics when they can effortlessly put everything into a partisan battle narrative.
The central objective of Uber’s PR strategy is to shortcut the information flow markets need to evaluate its actual business plan. It blocks empirical evaluation of whether Uber has a powerful, sustainable competitive advantage over existing operators with a contrived narrative of heroic startups offering cheap town car service trying to destroy the evil taxi medallion cartel. It blocks empirical evaluation of its actual technological offering with an emotive narrative of disruptive innovators versus Luddites and corrupt government bureaucrats. It blocks empirical evaluation of its astronomical financial evaluation with a simplistic narrative exploiting the media’s obsequious fanboy deference to Uber’s Masters of the Universe investors and their pursuit of staggering wealth. Having completed the conversion from a startup business story to a partisan/tribal/ideological battle, it knows that none of its natural allies will undertake any rigorous economic analysis, and any inconvenient facts can be dismissed as the biased rants of natural enemies. Bad economics eventually killed lots of other tech startups, but those companies had publicized their prospective competitive/technological/financial advantages, and failed when clear information contradicting those claims became too obvious to ignore. Uber’s “success is inevitable” meme can become self-fulfilling because it created an “alternate reality field” that blocked the market/economic/technological scrutiny that previous start-ups faced. Billions of dollars of existing taxi industry corporate value are likely to have been destroyed before the mainstream press begins to realize that it isn’t being replaced by anything better, and that billions of value will have been captured by a tiny group of investors.
Well yes, but there has already been a lot of experimentation, and I think the results are in. Figuring out the best way to argue against Uber’s claims needs to start with the recognition that the politicization of other economic debates (financial crisis, austerity, health care etc) rendered any economic counter-arguments ineffective and made any appeals to equity or ethics counter-productive. Every attempt to point out Uber’s crudely anti-competitive behavior, or blatant misogyny, or quasi-criminal journalist intimidation gets distorted by the media’s default “innovators versus protectionist” storyline, and ends up strengthening support from Uber’s natural tribal allies. Every attempt to explore Uber’s actual ability to compete and earn a return on investment gets warped by the “heroic disrupter” narrative that treats any criticism as attempts to protect “the evil taxi cartel and their corrupt regulators”.
Cities need honest, open discussion about how the most efficient ways to structure taxicab competition, and the business and technology communities need to have an honest, open discussion about whether Uber’s plan for massively disrupting the taxicab industry would actually improve efficiency and consumer welfare, and should serve as a model for disrupting hundreds of other industries. But those honest, open discussions cannot occur unless Uber’s political/tribal/ideological framing is destroyed.